Imperial Metal to raise $100 M to cover Mount Polley cleanup costs |
- Imperial Metal to raise $100 M to cover Mount Polley cleanup costs
- Chinese rare earth alliance sues Hitachi Metals over patents
- This pink diamond may become one of the most valuable gems ever sold
- America's first oil sands producer and other natural resources surprises: Peter Epstein
- Queensland approves rail line to coal port by Great Barrier Reef
- Trading pure play iron companies
| Imperial Metal to raise $100 M to cover Mount Polley cleanup costs Posted: 15 Aug 2014 02:28 PM PDT  Image from PhotoSat Imperial Metals Corp. (TSX:III) will raise $100 million through debentures to cover the cleanup costs of its Mount Polley mine disaster, and plans to move ahead with the commissioning of its Red Chris mine, despite the project being $61 million over budget and picketed by First Nations. Imperial's battered stocks took a healthy bump of more than 10% August 15, with the release of the company's second quarter financial statements. Imperial's stocks dropped 40% in a single day, from $16.80 to $9.98, on August 5, the day after the Mount Polley tailings pond dam collapsed in what has been called the worst mine-related environmental disaster in B.C. history. The tailings pond breach forced the shut down of the Mount Polley mine, Imperial's biggest money-maker. It will remain idle for "an indeterminate period of time," the company said in its Q2 statements. "While the precise costs of remediation and repair are presently unknown, the company believes that the costs can be managed over time given the underlying value of the company's assets and by the resources provided by the additional financing as detailed below together with insurance proceeds," the company stated. Imperial announced it will raise $100 million in debt. Murray Edwards, the company's largest shareholder, will buy $40 million of the six-year senior unsecured convertible debentures through is company, Edco Capital Corp. Fairholme Partnership LP will also buy $40 million worth of debentures.
Imperial's flagship project, the Red Chris mine, is nearing completion and was already starting to produce ore when the Mount Polley mine incident occurred. At least one mine analyst said he thought the Mount Polley incident would result in the Red Chris mine being delayed by a year. But in its Q2 financials, the company signaled it plans to move ahead with the project, despite cost overruns unrelated to the Mount Polley incident. The company estimates the total capital costs to be $631 million, up from the $570 million. The mine itself accounts for $25 million of the cost overrun. The balance – $36 million – is related to the construction of the Iskut extension – a transmission line that ties the mine into the new Northwest Transmission line. The Northwest Transmission line was officially commissioned August 13. It was built specifically to power Red Chris and other mines planned for the area. The Iskut extension is expected to be complete in September, "after which commission of the Red Chris mine can begin," the company said. Both the Red Chris mine and a proposed zinc-lead mine Imperial wants to build north of Kamloops – Ruddock Creek – is now facing heated opposition from First Nations. On August 14, as Imperial Metals executives were putting their second quarter financial report to bed, the Neskonlith Indian Band were knocking on the company's doors in downtown Vancouver in order to serve the company with an eviction notice aimed at stopping any further work on a proposed zinc-lead mine at Ruddock Creek. Meanwhile, a group of Tahltan First Nation activists called the Klabona Keepers have been blockading the entrance to the company's Red Chris mine. The group consists of members of the Tahltan First Nation, but do not represent the Tahltan's governing body, the Tahltan Central Council. The Tahltan have been negotiating a benefits agreement with Imperial on the Red Chris mine. It has not been finalized yet, although the Tahtan recently suggested the Mount Polley disaster has not caused the First Nation to back away from the Red Chris project. Tahltan Central Council President Chad Norman Day said the Tahltan are reaching out to both Imperial Metals and the Klabona Keepers. "We have reached out to the Klabona Keepers and are keen to discuss their intentions behind the blockade," Day said in a prepared statement. "We share their concerns in protecting the Tahltan environment, culture and our local communities into the future. We are and will continue to do everything in our power to make sure the Tahltan Nation avoids serious environmental issues at the Red Chris Mine." By Nelson Bennett Image by Photosat  |
| Chinese rare earth alliance sues Hitachi Metals over patents Posted: 15 Aug 2014 10:08 AM PDT
Seven Chinese rare earth companies are taking Japan's Hitachi Metals to court in the United States, claiming the firm violated international patent law and established unfair market barriers against them. The dispute revolves around neodymium-iron-boron magnets, which are widely used in in electric engineering, wind power, automotive and high tech industries. About half of the global consumption of rare earths is related to this magnetic alloy, whose intellectual property rights are mostly held by the Japanese firm. According to China Business News, Hitachi Metals owns more than 600 neodymium iron boron magnet patents, but has authorized only eight Chinese companies to use them in a total of 149 patents. Long-dragged battle China produces 70,000 to 80,000 tons of the magnets annually, with half of the products used domestically. Only a quarter of the magnet manufacturers have patent licenses enabling the products to be sold offshore. The battle over neodymium-iron-boron patents is nothing new. In 2012 the Tokyo-based filed a U.S. trade complaint against more than two dozen companies, seeking to block imports of competitors' rare-earth magnets used in electronics, mostly coming from China. Hitachi's own material patent in the U.S. expired in July, opening the door for Chinese companies that had neodymium iron boron magnet patents different from those of the Japanese firm to demand being allowed to sell their products in the U.S. Image by esfera | Shutterstock.com |
| This pink diamond may become one of the most valuable gems ever sold Posted: 15 Aug 2014 08:48 AM PDT  Coloured diamonds are now the world's most expensive precious rocks. An 8.41 carat, pear-shaped, flawless pink diamond will go under Sotheby's hammer in Hong Kong on Oct. 7, with the rare gem expected to fetch up to US$15.4 million. If the rock reaches its low-bid estimate of $1.5m per carat, it would gain a place among the top three pink stones ever sold at auction on a per-carat basis.  Sotheby's expects this diamond to fetch between $12.8m and $15.4m at auction on October 7. Quek Chin Yeow, chairman of Sotheby's international jewellery business in Asia, highlited the concentrated shades of pink in this particular rock. "Combined with the exceptional clarity, it is not surprising that it would command the highest per-carat pre-sale estimate for any pink diamond to date," he said in a press release. According to auction house, growing wealth in Asian has produced new buyers big diamonds, with coloured ones becoming increasingly popular in the past decade. These gems rarity has helped push diamond prices up, to the point that coloured rocks are now the world's most expensive stones. A 14.82-carat orange diamond sold for $36 million at Christie's International in Geneva in November, setting a record $2.4 million a carat. The same month, Sotheby's sold the Pink Dream, a 59.6-carat pink stone, for $83 million. Viewings will be held in Singapore, Taipei, New York, London, Geneva and Hong Kong before the auction. |
| America's first oil sands producer and other natural resources surprises: Peter Epstein Posted: 15 Aug 2014 07:45 AM PDT The natural resources space has been difficult in recent years. Potash prices collapsed, uranium spot prices hit a nine-year low, the gas market was in glut. Only oil has stayed strong. But Peter Epstein of MockingJay Inc. has found some gems in the resource rubble, and foresees better times ahead. In this interview, Epstein tells The Energy Report who stands to capture the graphite market, how to catch the next wave in potash, and offers his thoughts on when investors might catch a break in the uranium market. The Energy Report: Why are you excited about the oil and gas space right now? Peter Epstein: Oil and gas is unique in that it hasn't budged when so many commodities have fallen precipitously in price. Coking coal prices, for example, are at multiyear lows. The iron ore price has fallen below $100/metric ton. The uranium spot price has fallen to a nine-year low. But oil prices have held in the $90–100/barrel ($90–100/bbl) range on West Texas Intermediate crude for three or four years, steady and strong. Natural gas prices collapsed in 2012 but have come back fairly strong, only recently giving back a bit of the gains. That's why I like oil and gas. It's a strong commodity. Even with all this talk about a slowdown in China, which causes lots of commodities to fall, oil and gas sticks in there. TER: Oil, gas and mining industries are tarred with the same brush by environmental advocates, who describe them as dirty, polluting and environmentally destructive. Can these industries be made attractive to investors who put a premium on environmental considerations? PE: Companies are learning the hard way that they have to have a social license to operate, as well as address the increasingly long list of permitting and environmental hurdles. Extractive industries that are dirty and polluting have to clean up their acts. But this is not a new problem; it's been going on for years—or even decades—depending on the jurisdiction. Another negative impact for such companies is the longer time frame to production, created by a myriad of factors above and beyond environmental considerations. A longer time frame means more difficulty funding projects, and therefore a lower net present value. Project hurdle rates have to rise to account for the higher risks and longer time frames. This means that industry-wide cost curve increases and commodity prices have to rise in response. Margins will be squeezed somewhat, even if companies enjoy higher commodity prices in the long term. TER: What do companies have to sacrifice to achieve environmental goals? PE: Companies have to give up profits to meet these new realities. But companies that approach dirty and polluting industries in innovative ways, frequently with the use of technological advances, will be rewarded. For example, American Sands Energy Corp. (AMSE:OTCBB) is trying to become one of the first U.S. companies to extract bitumen from oil sands. Located in Utah, the company proposes an entirely new approach—In fact, without this new approach, there's no chance that American Sands Energy could operate in the U.S. The company uses a proprietary solvent to separate the bitumen from the sand, but no water is used in the process. In arid eastern Utah, this is an extremely important factor. No water is required because the oil sands deposits in Utah are entirely different from those in Alberta, Canada. In Canada, the oil sands are a mixture of water, sand and bitumen. In Utah, the deposits only contain bitumen and sand—no water. American Sands Energy is a perfect example of a company that could be a winner by mitigating environmental factors.
Or take a company like Graphite One Resources Inc. (GPH:TSX.V), which has a project in Alaska. Everyone's heard about Tesla Motors Inc.'s (TSLA:NASDAQ) gigafactory, which will produce a large number of batteries for electric vehicles. Around the time of Tesla's big announcement in February, an outcry by certain groups contended that a large quantity of currently sourced graphite comes from dirty, polluting mines in China. This played a role in Tesla's announcing it would source the key materials for its batteries from North America. And Graphite One is one of only two U.S. graphite plays. Graphite One has a massive graphite resource, of which a significantly sized portion can be mined at surface. The company plans to infill the mined areas to fully reclaim the disturbed areas. Graphite One is definitely worth watching. In fact, it is unique among graphite companies in that it has the opportunity to apply for a loan through a state of Alaska program. Alaska is mining-friendly, and will help ensure that prudent environmental standards are followed. TER: Is there another graphite company that you like? PE: Big North Graphite Corp. (NRT:TSX.V) is rehabilitating an existing, formerly operating facility in Mexico. I mention this as an example of something environmentalists like: a new company that comes in, starts up production, provides jobs and, more importantly, cleans up the whole mess when it's done. Right now, the mine is just an eyesore. It's damaged earth. Big North Graphite is going to reclaim the site in the end. TER: What other companies are you excited about? PE: Aroway Energy Inc. (ARW:TSX.V; ARWJF:OTCQX) has a heavy oil property in Saskatchewan, a light oil property in central Alberta and owns land in the Kerrobert area of west-central Saskatchewan. This story fascinates me because the company is 4–6 weeks away from drilling its Kerrobert area. Back in April, this stock was trading at CA$0.28, today it's at about CA$0.25. Yet the company is three months closer to potentially finding a blockbuster field. Located just 5–6 miles away, a private company called Caltex Resources Ltd. is producing a reported cumulative 4,000 barrels/day from dozens of wells. If Aroway hits in late August, the stock could double or triple in subsequent months. TER: When uranium's price stalled around $35/pound ($35/lb), everyone bet it was about to rise again, because it couldn't go any lower. Then it stalled again, at about $28.50/lb. What will make uranium mining profitable and attractive again? PE: For the first time since April, the spot price has a $3 handle on it, with Ux Consulting quoting it at $30/lb on Aug. 11. It appears that spot uranium may have bottomed at about $28/lb. If the spot price rebounds to even just $35/lb, that could be bullish for the sentiment of uranium juniors. Let me point out that the spot price is not the same as the long-term price that most utilities contract at. Make no mistake, $28.50/lb was a nine-year low and a depressed price. Most uranium mines around the world can't do business at $28.50/lb—or at $35/lb. Many analysts believe the price at which new greenfield projects would get the green light is $60–75/lb. That might sound high, but in the months leading up to the terrible Fukushima disaster in March 2011, the long-term uranium price was steady at around $70/lb. Globally, the cost per pound to produce uranium has not gone down over the past three years. All mining costs are generally increasing because of the factors we've discussed: permitting costs and time frames, environmental concerns, etc. The market needs a higher uranium price, and we will see a higher uranium price. It's a question of when, not if. Many pundits point to the restart of some Japanese reactors, all of which are currently offline. I agree that this will be a positive sentiment booster, but that alone will not be enough to move uranium prices by all that much, in my opinion.
Instead of focusing on Japan, the market should be watching China and India, both of which only generate 2–3% of their electricity from nuclear power. That has to change—and it will. Given their severe air pollution problems, the Chinese are going to build new reactors as fast as they can. They will also continue ramping up hydropower, wind, solar—you name it. But nuclear power generation in China is going to be a larger part of a growing pie. China is sitting on $2–3 trillion ($2–3T) in U.S. Treasuries, and it will happily buy hard assets in the form of uranium or uranium enrichment facilities. The Chinese are very active, up to a state-owned entity level, in terms of building nuclear power stations. Some analysts point to in-situ recovery operations as potentially profitable. These have low costs and can be profitable at a uranium price of, say, $40–45/lb. But the size of these projects is typically too small to move the needle globally. Finally, I would point out that utilities have not been contracting for long-term supplies of uranium since they feel no urgency to do so. That will have to change. Utilities can't wait until 2017 to contract 2018–2023 uranium supplies. As soon as next year, utilities will be back in the market and the long-term price of $45/lb will rise. As a commodity that's hit a nine-year low, uranium is out of favor. A lot of the uranium stocks are oversold. But I think there are opportunities in small names. TER: Some projections for nuclear power plant construction in China suggest that even with as much construction as it wants to do, the country still won't exceed 10% of its total power needs. Is that going to greatly increase uranium demand? PE: China expects to start building something like six new reactors every year for the next five years, and that's going to keep ramping up. If your question is how long will it take to get 10% of its electricity from nuclear power, it could take 10–15 years. China thinks long term, and has a lot of U.S. dollars that it would like to transform into hard assets. And it's not just the Chinese who are actively going after uranium and nuclear power. It's Russia as well, and India. By the way, both China and India are very active in building hydroelectric dams. But that kind of construction gets an unbelievable amount of scrutiny in terms of the environment, and the fact that tens or hundreds of thousands of people must be moved out of villages to build these dams. Hydroelectric development in China and India may come to a quicker end than people realize. Then, of course, you have coal. The World Bank, the International Monetary Fund, the U.S. and some other major international bodies are saying they're not going to fund Third World coal power plants anymore. Those factors all lead to more nuclear power development. TER: Is there another company you'd like to mention? PE: CBD Energy Ltd. (NASDAQ:CBDE) is interesting because, in addition to being a solar stock, the company also works with wind and energy management systems. It has over 17,000 (17K) installations, mostly in Australia, and is moving into the U.S. In Australia, 15% of homes have solar. In the U.S., it's estimated that 1% have solar. Even though it's extremely competitive in the U.S. for companies installing rooftop solar panels, the penetration of solar on rooftops of individual homes is still quite low. CBD Energy is well funded. It has a strong management team and a long track record. In fact, it has licensed the "Westinghouse Solar" trademark to tell people who it is. It's a real brand name. The exciting part of the story is that solar companies can trade at 10–30x revenues. But it's a very competitive, crowded space, and it's hard to tell if those kinds of multiples are fair, or if it's a bubble. In the case of CBD, however, you have a geographically diversified, fast-growing, small company that's trading at a 1x multiple of 2015 revenue. TER: The potash space was shaken up in the last year by the collapse of the cartel in Russia. How is that affecting the potash space in North America today? PE: Potash is a generic term that refers to a group of potassium-bearing minerals, naturally occurring potassium salts and the products produced from those salts. Potash is a plant's main source of potassium, and is used in fertilizers. For muriate of potash (MOP), prices collapsed after that event. It took a couple of months, but the potash price fell from more than $400/metric ton down to about $300/metric ton. Prices differ around the world, so I'm using a benchmark price that a lot of people refer to.
MOP is widely used in all types of farming, but it contains a chloride ion that can be detrimental to plant growth, especially fruits and vegetables. Sulfate of potash (SOP) is different. SOP improves yield, quality, taste and shelf life. These attributes are valuable to farmers, so SOP trades at a premium price to MOP. SOP prices barely moved at all. It's almost like they're two different products. SOP is a specialty product with one-tenth the market of MOP. A third-party study commissioned by Potash Ridge Corp. (PRK:TSX; POTRF:OTCQX) suggests that demand for SOP would be 2–3 times greater if existing users could ensure security of supply, and if new users were introduced to SOP versus MOP. The premium of SOP over MOP has moved quite a bit because SOP prices were virtually unchanged during the Russian cartel turmoil, while MOP prices fell 25%. You can make SOP, but you need MOP as a feedstock to start with. If you have to start with MOP and spend money to process it, the margin is not going to be that strong. Since it is an expensive process, not many companies do it. That's why the MOP market is 50M metric tons/year, and the SOP market is about 5 million tons. Potash Ridge's Blawn Mountain project in Utah, on the other hand, will produce SOP by directly extracting it from mineral ores. By starting with SOP, which few companies in the pipeline have the ability to do, Potash Ridge has the competitive advantage of being able to offer a lower SOP price. The company has other advantages as well: It has a near-surface resource, and it's on state land, not on federal land, so there's no interaction with the U.S. Bureau of Land Management. For MOP, in Saskatchewan alone, there's a huge amount of production. Plus, a number of juniors and both BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) have projects they could bring online. TER: You have an extremely diverse portfolio of companies that you follow. Can you offer some advice for investors looking to build that kind of a portfolio for themselves? PE: Investors in natural resources have not been happy campers for the last two or three years. I think it's important to stick with companies that have cash on their balance sheets. Stick to companies already in your portfolio, even if they're down 60–70%, with good management teams that are 100% committed to the company, not management teams involved with five different companies at once. And watch out for the cash burn of companies. You want the cash burn to be minimal, so that your companies can live to fight another day. TER: Peter, I appreciate your time and your insights. In 2011, CFA Peter Epstein left his senior analyst position at a $3B hedge fund and formed MockingJay Inc., a consultancy for companies in the natural resources space and an informal investment adviser to high-net-worth investors, family offices and funds. The company's mission is to increase awareness of select natural resource companies. Epstein's areas of expertise include uranium, coal, potash, gold and oil & gas. He has published hundreds of articles on investment sites such as Seeking Alpha, The Motley Fool and Au-Wire.com. Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page. DISCLOSURE: |
| Queensland approves rail line to coal port by Great Barrier Reef Posted: 15 Aug 2014 07:24 AM PDT
Indian mining giant Adani has won final approval to build a 300km rail line from its Carmichael coal mine to one of the world's biggest coal ports close to the Great Barrier Reef. Queensland's endorsement comes on the heels of a federal decision to let US$15bn Carmichael coal mine move forward in the untapped Galilee Basin.  Map from IEEFA's report. Click on it to expand. The approval of the railway line, The Australian reports, means that Adani now only needs to get the federal government blessing on the same rail line to have all required permits in place and so begin construction of the mine and transporting coal to port. The Carmichael coal mine —potentially Australia's largest— is expected to generate billions of dollars in revenue to a state that is struggling to cut its US$75 billion debt pile. Premier Campbell Newman had said the $2.2bn project would fund schools, hospitals and roads and create 2,400 jobs during construction. Minefield Coal port projects and expansions have been a source of controversy in the last two years, with academics and environmental groups raising the issue of "irreparable damage" to the country's Great Barrier Reef Marine Park. In 2012 UNESCO, the UN educational, scientific and cultural arm, sent an inspection team to the area, finding "a continuing decline in the quality of some parts" of the reef. However, the Queensland Resources Council was quick to snub the report. Last year more than 150 marine scientists from 33 institutions signed a letter warning Australian authorities of the mounting threats new coal ports and other industrial projects pose to the reef's habitat. And in May, Deutsche Bank refused to fund Adani's plans to expand the port after the UN raised fresh concerns about its effects on the world's heritage site. Some 100 million tonnes of coal will pass along the railway every year. |
| Trading pure play iron companies Posted: 15 Aug 2014 07:00 AM PDT Atlas Iron is one of the major 'pure play' iron ore companies listed in Australia. Due to most people being unable to trade iron ore directly, trading a company such as Atlas Iron allows a trader the potential to profit from their views on the future iron ore price. Iron ore: The iron ore price has recently seemed to follow a cyclical price pattern. Over the last few years, the iron ore price has typically bottomed out between June and September before it makes a new run higher, the exception being 2011 when it didn't bottom out until the end of October. This year the trend so far is similar with iron ore falling from $139.70 per tonne in December 2013 down to a bottom of $89.00 per tonne recently, before recovering slightly to a current level of just over $93 per tonne. If recent history repeats, there is a good chance that we have already seen the low in the iron ore price for 2014.
 Technical Analysis: Atlas Iron has had a terrible year in terms of share price performance; however this has provided the opportunity of a much lower entry point for those with a bullish view on iron ore and the Chinese economy in general. Recently there was a double bottom observed over June and July 2014, which is a strong bullish signal that the share price may have bottomed in the short term. Strengthening this view is another strong bullish signal, a positive divergence that occurred in the RSI at the same time, with the RSI recording a higher low in July when the share price showed an equal low.
 Source: IG trading platform Corporate activity: With BC Iron's recent takeover offer for Iron Ore Holdings (IOH), and the recently completed joint Baosteel/Aurizon takeover of Aquila Resources (AQA), the iron ore sector is currently one of the hottest sectors of the Australian share market to be involved in. Atlas Iron has also been tipped in the past to be a prime takeover candidate. Its recent resource and reserves upgrade will do nothing to harm this theory. The bear case: Analysts have been forecasting for years that the price of iron ore will fall from its current multi-year highs on the basis that supply will catch up to demand on the back of large new and expansion projects due to be brought into operation by iron ore companies including Rio Tinto and BHP, which will drive the price back down towards its long term level. Potential trading idea: I would potentially be looking to place a buy on stop order above the recent high of $0.735. In this case I would be looking for confirmation of a move higher before entering the trade. If I were to buy at current prices I would get a cheaper entry level, but the stock may be confined to the current trading range for some time and the break-out may never eventuate. So in this case I am looking to take advantage of momentum that may eventuate from a price break out. I would potentially look to set a stop loss just under the recent low. If the share price falls below this level it is a sign of significant share price weakness as it would have broken through the recent strong support level and would mitigate potential losses. Once the trade has been entered, I would look to set an initial profit target at around $0.90, this was a recent price support level which may act as a resistance level in the future. Alternatively I could look at a short trade and profit from a potential move lower. Here, I would look to potentially set a sell on stop order slightly under the recent support level of $.0545. If the market has moved through my stop and the position filled, I would look to set a stoploss a few cents higher than the support level in case it proves to be a false break. By Matt Chambers for IG Australia This information has been prepared by IG Markets Limited. ABN 84 099 019 851, AFSL 220440. We provide an execution-only service. The material on this page does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations, or an offer of, or solicitation for, a transaction in any financial instrument, or a record of our trading prices. No representation or warranty is given as to the accuracy or completeness of the information. Consequently any person acting on it does so entirely at his or her own risk. The information provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who view it. IG accepts no responsibility for any use that may be made of the comments and for any consequences that result. |
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